What is your tax situation?

[The White Coat Investor]

[poll id="63"]

Inquiring minds want to know.

[VagabondMD]

2 W-2s for primary incomes (spouse and self), but a smattering of additional income via K-1s and 1099 for self.

[jfoxcpacfp]

Bump!

[meccos]

I reviewed my taxes and it seems the self employment taxes are what really drive my taxes up.   Is that the case for everyone else?

[Hatton]

yes

[PhysicianOnFIRE]

For the past few years, I've been W2 only. One income.

I do get a K-1 for owning a small piece of a brewery, and this year, I'll have some self employment income from blogging.

 

[jfoxcpacfp]

meccos wrote:

I reviewed my taxes and it seems the self employment taxes are what really drive my taxes up.   Is that the case for everyone else?

Click to expand...

Your observation is correct. Think about it - when you have a loss in your business, you reduce only your income taxes, not your FICA taxes. If you have a loss carryover, back or forward, the loss offsets only income taxes, not FICA taxes (as it properly should). That's ~15% hit (~3% above the SS limit) is significant.

Tax planning is very critical with respect to minimizing FICA/Medicare taxes. The "sweet spot" is to depreciate purchases and make other choices to reduces your net profits to somewhere between $0 and $400. In this space, you are exempt from FICA. Of course, with a highly profitable business, that is difficult unless you have a large equipment purchase, in which case you can elect the right amount of section 179 depreciation to get you into that range.

With an s-corp, you have more control (at least for now).